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Commercial Paper Market Contracts Again

Seventh consecutive weekly decline led by decline in issuance by U.S. financial institutions.

The market for corporate borrowing through U.S. commercial paper fell for a seventh week, led by a drop in issuance from domestic financial institutions to the lowest level in at least a decade, as companies turned to the bond market with rates at record lows.

The seasonally adjusted amount of U.S. commercial paper dropped $21.2 billion to $943.6 billion outstanding in the week ended yesterday, the seventh straight weekly decline, the Federal Reserve said today on its website. That’s the longest stretch of decreases since the period ended Oct. 19, 2011, and the lowest level since the market touched $939.9 billion May 2, according to Fed data compiled by Bloomberg.

Borrowers are seizing advantage of unprecedented low interest rates to sell longer-term company bonds, while money-market funds’ demand for short-term IOUs has been reduced by concern that Europe’s debt crisis may damage credit quality globally, making it more difficult for companies to repay these obligations.

“The continued decline in commercial-paper issuance should be juxtaposed against the increase in corporate bond issuance, which makes clear the effort by corporate America to term out its debts rather than be reliant upon short-term funding,” Tony Crescenzi, a portfolio manager and strategist at Pacific Investment Management Co. in Newport Beach, California, wrote in an e-mail.

Commercial paper issued by U.S.-based banks fell $4.5 billion to $244.9 billion outstanding, the least since at least January 2001, according to the Fed. The amount sold by non-U.S. financial institutions declined for the first time in four weeks, dropping $7.4 billion to $227.4 billion outstanding.

Companies have sold $3.16 trillion of bonds worldwide this year, a pace that’s second only to the record issuance in 2009, according to data compiled by Bloomberg. Yields on global investment-grade company bonds fell to an all-time low 2.676 percent Oct. 15, according to Bank of America Merrill Lynch index data.

Corporations sell commercial paper, typically maturing in 270 days or less, to fund everyday activities such as rent and salaries.

Bloomberg News

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